Parity between euro and sterling expected by end of 2009

The euro reached its strongest level (82.09p) since the creation of the currency in 1999, and as of 12pm today (12 November) the interbank rate would buy you as little as €1.2150 to the pound sterling.

Rupert Lee-Browne, the chief executive officer of specialist currency broker Caxton FX, said parity could be reached as recession deepens in the UK, affecting property, retail sales and interest rates.

His comments came as the euro has strengthened by nearly 3 per cent over sterling so far this month (November), to hit an all time high against sterling (€1.2176) yesterday (11 November).

Caxton FX blamed the latest plunge in sterling on a record drop in the cost of goods leaving UK factories and confirmed market suspicions that inflation had peaked and was falling.

Fuel and raw material costs also fell 5.6 per cent, the fastest decline in 22 years, giving the Bank of England further scope to cut interest rates in the coming months.

Alex Dunn, senior analyst at Caxton FX, said: "We will see further interest rate cuts over the coming months. Many expect another cut of at least 50 basis points in December, which will further erode the yield appeal of the pound.

"Moreover, worsening economic conditions in the UK, including property and retail sales, will accelerate the rise of the euro even further."

Lee-Browne said the slide of the pound was also due to last week's interest rate decisions by the Bank of England and the European Central Bank. Lee-Browne comments,

He said: "The fall in sterling is quite extraordinary. This is all about a lack of confidence in sterling as investors believe the UK will be hit the hardest by the worldwide recession.

"Europe, on the other hand, is in a better position to recover from the current financial crisis. With this much confidence in the euro, we could see parity by the end of 2009."